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The Formation of Groups for Cooperative Decision Making Under Uncertainty

Jakob Rosing

Abstract

In many situations involving interaction among parties, the individual welfare of each party can be improved by cooperation. This requires a cooperative decision, which specifies the course of action to be followed by each party, and a rule for sharing the total payoff resulting from that decision. In general, the total payoff will depend on the value of a random variable that is unknown at the time of the decision making. The payoffs are assumed to be in monetary terms while there is no restriction on the transfer of money between parties. This paper determines the sufficient conditions under which the cooperative decisions can be ordered according to their corresponding Pareto optimal fronts. The same ordering of the decisions can be obtained on the basis of the expected utility of a group, which has a particular utility function for the total payoff and probability distribution for the random variable. For the case of two parties, the conditions are determined under which the parties are willing to delegate the cooperative decision making to such a group on a provisional basis.